Chapter 11: Financial Statement Analysis Flashcards
effect of the inventory cost flow assumption on working capital
When the cost of items being purchased for inventory is changing, the inventory cost flow assumption used (e.g., FIFO or LIFO) influences the inventory account balance, total current assets, and working capital.
number of days’ sales in accounts receivable
An indicator of the efficiency with which accounts receivable are collected.
number of days’ sales in inventory
An indicator of the efficiency with which inventories are managed.
price/earnings ratio or earnings multiple (P/E ratio)
An indicator of the relative expensiveness of a firm’s common stock.
dividend yield
The ratio of the annual dividend per share of common stock to the market price per share.
dividend payout ratio
The ratio of the annual dividend per share of common stock to the earnings per share.
regular dividend
A dividend that is likely to be declared on a repetitive, periodic (i.e., quarterly, semiannual, or annual) basis.
extra dividend
A dividend that is not likely to be incorporated as part of the regular dividend in the future.
preferred dividend coverage ratio
The ratio of net income to the annual preferred stock dividend requirement.
financial leverage measures
The debt ratio and debt/equity ratio that indicate the extent to which financial leverage is being used.
debt ratio
The ratio of total liabilities to the sum of total liabilities and total stockholders’ equity. Sometimes, long-term debt is the only liability used in the calculation.
debt/equity ratio
The ratio of total liabilities to total stockholders’ equity. Sometimes, only long-term debt is used for the numerator of the ratio.
book value per share of common stock
The quotient of total common stockholders’ equity divided by the number of shares of common stock outstanding. Sometimes called net asset value per share of common stock. Not a very useful measure most of the time.
common size statement
A financial statement in which amounts are expressed in percentage terms.
vertical common size statement
total assets are 100 percent, and all other amounts are expressed as a percentage of total assets each year; for an income statement, sales are 100 percent each year.
